HINT Newsletter

Oszko Sees Chance to Reduce Tax Centralization to 33-34 Pct by 2011

Planned tax changes will have an overall neutral effect on the budget this year, as savings from the tightening steps will be sufficient to compensate for a revenue shortfall.

Tax centralization could start to fall next year and could be reduced to 33-34 pct of GDP from 40 pct at present by 2011, Finance Minister Peter Oszko said in an interview with MTI.Employers can expect a 5 percentage point cut in payroll taxes and the elimination of the fixed-sum monthly health contribution next year. This could cut the cost to the employer by 6 pct on employees earning the average wage and by 7.7 pct for employees at the minimum wage, Mr Oszko said. The steps could encourage new hirings, especially of lower-trained staff, he said. The changes in the taxes will motivate employees through extending the bracket of lower personal income tax rate to incomes four times of the average wage. This will reduce the current high marginal taxation of 71 pct which does not encourage better performance, the minister said. Hungarian wages could get among the three most competitive in the region if the ratio of net wages to wage costs rise 10-12 pct from 46 pct at present.

The government cannot rely on the "whitening" of the black economy at present. This process can bring in additional revenue only if it goes parallel with a cut in the tax burden and tighter tax control, Mr Oszko said, citing the example of Slovakia and Russia. These countries made these steps when they had enough buffer to take the risk. Measures to whiten the economy should still be taken, but budget revenue must be planned in the most conservative manner possible, Mr Oszko said. He noted that it is difficult to estimate the size of the black economy, but it is even more difficult to foresee how reduced taxes would affect this "sector's" propensity to pay tax.